It's A Good Time To Buy, But It's Also A Good Time To Be Careful

November 21, 1993|By Christine Dugas Newsday

NEW YORK — ''Affordable Dream,'' trumpets a recent real estate ad.

''Great rates. Low payments. A home of your own,'' boasts another ad.

In other words, this is a buyer's market. Mortgage rates are at historic lows. And many real estate experts are predicting that residential property values have bottomed out and are poised for takeoff.

That's certainly an incentive to consider buying a home or condominium now. It's also a cause for panic, some people say.

''I've been putting myself under tremendous pressure,'' says Christine Lapidus, owner of a women's apparel manufacturing company in Manhattan. She worries that interest rates will climb before she finds an apartment she wants to buy. ''I finally said I can't keep pressuring myself like this.''

There is no doubt that buying a house can be one of life's most nerve-wracking experiences. Few decisions are as complicated, costly and emotional. Many potential home buyers soon discover that in the world of bankers and brokers, few people have the consumer's interest at heart. So although it may be a buyers' market, the most important rule to remember is buyer beware.

In the end, the headaches involved in buying a house usually prove worthwhile. Owning a house provides an emotional and financial base that most Americans want. Here are some basic things to consider before you begin shopping for your dream home:

Start with a reality check on your finances. You can't buy a house or apartment unless you can get a mortgage.

Lenders have strict guidelines on how much they will lend, depending on your credit history and income, among other things.

In general, lenders say that no more than 28 percent of your gross monthly income can be spent on housing-related expenses, such as mortgage payments, insurance, taxes or co-op maintenance payments. Another measure that banks will look at is your total debt load. As a rule, they don't want your mortgage payments, credit card bills and other consumer debts to exceed 36 percent of your gross monthly income.

Next, you have to determine if you can afford the down payment and closing costs. A down payment typically ranges anywhere between 5 percent and 25 percent of the purchase price. Closing costs can add up to another 7 percent.

Imagine this scenario: You're buying a house for $150,000. The bank wants a 20 percent down payment, and you need another $4,500 for various fees and closing costs.

Then, don't forget to count how much it will cost to move and get settled in your new home. You might want to paint. You may need new curtains and possibly carpeting. ''First-time home buyers like to buy new furniture and decorate, which can be very expensive,'' says Ron Roge, a financial planner for Centereach in New York. ''And if they're buying a home, they'll probably need to landscape.''

So, in this case, your cash outlay to buy the house easily could total $40,000.

Even if you believe you can qualify for a mortgage and afford the upfront costs, you need to be sure buying is a better choice than renting. Lewis Altfest, a Manhattan financial planner, says you should take stock of your plans: Do you hope to switch jobs in a few years? Do you think your company may transfer you to another city in a year or two?

Experts say it usually doesn't make financial sense to buy unless you'll be in the home at least four or five years. If you have to sell before then, your home may not have appreciated enough for you to recover your initial costs.

Most financial experts say that although a house can be a good financial investment, there is no guarantee you'll make a killing when you finally sell. ''It's a matter of supply and demand,'' Roge says. ''If there's no demand, prices won't appreciate.''

In the 1970s and 1980s, there was plenty of demand. Real estate was booming, and just about every house or condo was along for the ride. Home buyers didn't have to be very discriminating. Now, however, you need to be sure that you're not overpaying for a home by researching average prices in the neighborhood of your choice.

Buying a home still offers you a tax advantage over renting. You can deduct the interest on your mortgage and your property taxes. Don't forget that as you pay off your mortgage, you build equity in your home - something you can borrow against later to help pay for a child's college education or to remodel your home.

By the time you approach retirement, you probably will have paid off your mortgage. So even if you don't stand to make a windfall from selling your home, you will have the security of owning it free and clear.

If you've done your soul searching and budget analysis and decide to pursue buying a home, be sure to order copies of your credit reports right away. You want to find out if old credit problems are still haunting you. You want to make sure there aren't any mistakes on your credit reports that could hold up your mortgage approval.